The Process

My investment process has evolved over time. It is the result of years of research, trial and error. It’s top down in nature and its roots stem from classical free market economic thought. (Austrian School)

Step One | Market Analysis

The first step is to determine whether to be in the market at all. Do we want to be the offensive (capital appreciation) or defensive (capital preservation)?

Our primary market indicators utilize the concept of ‘bullish percent’ which have been in use for more than 40 years. Bullish Percent measures the overall risk in the market. The BP reading dictates whether the portfolio will have a long or short bias.

Step Two | Sector Analysis

Looking deeper, step two digs into the sectors. We drill down into each of the 12 major market sectors and 40 sub-sectors to determine which, if any, offer the best chance of success. Industry sectors, like the four seasons, move in and out of favor. The portfolio strives to be long the most favored sectors and to avoid (or short) the least favored ones.

Step Three | Fundamental Analysis

In its simplest form, fundamental analysis tell us what to buy or sell short.

Our goal in using fundamental analysis to create a watch list of names that are the best of class in the strongest sectors and the worst of class in the weakest. The fundamental research that we use comes from several independent and trusted institutional research firms.

Step Four | Technical Analysis

Step 4 is the application of our craft, technical analysis, specifically Point & Figure charting to our watch list. We are specialists in technical analysis and have found that using P&F charting eliminates most if not all of the noise surrounding stocks and indexes. We are not day-traders. We are position traders and tend to hold positions from a week to a year or more.

What we are looking for here are catalysts that are causing investors to take action – either buying or selling.

For example, on the ‘buy side’, we look for names that possess a positive Relative Strength and show an above average probability of outperforming the market. In other words, we are looking for investments where demand exceeds supply.

Technical Analysis tells us when to buy or sell short by identifying each position’s entry and exit point.

Step Five | Risk Management

The final step is managing the portfolio. This is done using proprietary state of the art risk management tools. We place risk limits on each position and the portfolio as a whole. We strongly believe in using stop loss orders as well as option strategies to create synthetic stops where appropriate.

This final step is what sets us apart from other portfolio managers. Risk management is virtually ignored by amateur investors and fund managers alike. This, to us, is the ‘most’ important step.

Establishing a position is easy but it’s the exit strategies that determine whether the trade is profitable or not.